Europe on the Edge of Total Financial Blowout

July 11, 2016
Deutsche Bank Moosburg, Germany Photo: Björn Laczay

Europe is facing three triggers for a blowout of the trans-Atlantic financial system, any one of which could detonate at any moment. And these are by no means the only sources of collapse of the trans-Atlantic, London/Wall Street-led system.
First, the Italian banks are on the verge of collapse. It is officially admitted that the leading Italian banks are carrying 360 billion euros in non-performing debt—and unofficial estimates put that number much higher. As Italian Prime Minister Renzi correctly warned, however, the crisis surrounding Deutsche Bank is “a hundred times worse.” DB is sitting on $72.8 trillion in current derivatives contracts and is carrying a mountain of non-performing debt. On Sunday, DB chief economist David Folkerts-Landau called for an immediate, emergency 150- billion-euro bailout of the big European banks—starting with his own DB . Under European Union laws, in effect since Jan. 1, banks must be put through bail-in before any bailout, and this, itself, is a certain trigger for a systemic blowout.
As of Monday, major London real estate funds were facing an investors' run, in the wake of the Brexit vote, and the prospect of an imminent blowout of the entire British real estate bubble is very real. In a clear panic over the accelerating disintegration, the ruling Conservative Party strong-armed one of the two remaining candidates for party chair to quit the race, so that Theresa May could be installed as Prime Minister on Wednesday—to have a government in place to deal with the onrushing crisis.
This imminent, systemic crash cannot be separated from the growing danger of nuclear war, following the Warsaw NATO heads-of-state summit last week.
It is precisely because of this combined danger of a collapse into chaos and potential war of annihilation that Lyndon LaRouche has called for a one-time bailout of the German banks, to staunch the bleeding long enough to launch a genuine policy change, based on his own Four Laws for how to revive the world economy, through credits directed at improving the productive powers of labor, through investment in infrastructure, frontier scientific research, led by a massive expansion of the space program and similar actions. LaRouche warned colleagues on July 10 that if Germany plunges into chaos, war is imminent. Germany holds the key to a new European policy towards Russia, based on strategic and economic cooperation, and if this relationship is wrecked, the consequences are catastrophic.
It's time to face the reality of the current crisis, LaRouche demanded, and to act on the emergency basis that it demands.

Read LaRouche's "The Four Laws to Save the U.S.A."



Zepp-LaRouche: Deutsche Bank Must Be Rescued, for the Sake of World Peace!

Statement issued by Helga Zepp- LaRouche, Chairwoman of the German Civil Rights Movement Solidarity (BüeSo), on July 12, 2016.

The imminent threat of the bankruptcy of Deutsche Bank is certainly not the only potential trigger for a new systemic crisis of the trans-Atlantic banking system, which would be orders of magnitude more deadly than the 2008 crisis, but it does offer a unique lever to prevent a collapse into chaos.

Behind the SOS launched by the chief economist of Deutsche Bank, David Folkerts-Landau, for an EU program of €150 billion to recapitalize the banks, lurks the danger openly discussed in international financial media, that the entire European banking system is de facto insolvent, and is sitting on a mountain of at least €2 trillion of non-performing loans. Deutsche Bank is the international bank which, with a total of €55 trillions of outstanding derivative contracts and a leverage factor of 40:1, even outdoes Lehman Brothers at the time of its collapse, and therefore represents the most dangerous Achilles heel of the system. Half of DB's balance sheet, which has plummeted 48% in the past 12 months and is down to only 8% of its peak value, is made up of level-3 derivatives, i.e., derivatives amounting to circa €800 billion without a market valuation.

It probably came as a surprise to many that Lyndon LaRouche called today for Deutsche Bank to be saved through a one-time increase in its capital base, because of the systemic implications of its threatened bankruptcy. Neither the German government with its GDP of €4 trillion, nor the EU with a GDP of €18 trillion, would be able to control the domino effect of a disorderly bankruptcy.

The one-time capital injection, LaRouche explained, is only an emergency measure which needs to be followed by an immediate reorientation of the bank, back to its tradition which prevailed until 1989 under the leadership of Alfred Herrhausen. To actually oversee such an operation, a management committee must be set up to verify the legitimacy and the implications of the obligations, and finalize its work within a given timeframe. That committee should also draw up a new business plan, based on Herrhausen's banking philosophy and exclusively oriented to the interests of the real economy of Germany.

Alfred Herrhausen was the last actually creative, moral industrial banker of Germany. He defended, among other things, the cancellation of the unpayable debt of developing countries, as well as the long-term credit financing of well-defined development projects. In December 1989, he planned to present in New York a plan for the industrialization of Poland, which was consistent with the criteria used by the Kreditanstalt fuer Wiederaufbau (KfW) for the post-1945 reconstruction of Germany, and would have offered a completely different perspective than the so-called "reform policy," or shock therapy, of Jeffrey Sachs.

Herrhausen was assassinated on November 30, 1989 by the "Third Generation of the Red Army Fraction," whose existence has yet to be proven to this day. It happened only two days after Chancellor Helmut Kohl, who counted Herrhausen among his closest advisors, had presented his ten-point program for gradually overcoming the division of Germany [between East and West]. The cui bono of the terrorist attack remains one of the most fateful issues in the modern history of Germany, and one which urgently needs to be clarified.

The fact is that Herrhausen's successors introduced a fundamental paradigm change in the bank's philosophy, which brought Deutsche Bank into the wild world of profit maximization at all costs, and also into countless unpunishable and punishable legal entanglements, which those responsible have avoided until now, mainly because of the "too big to fail" premises.

The transformation of Deutsche Bank into a global investment bank with the highest derivatives exposure, combined with the simultaneous credit crunch for German small and medium-sized enterprises, is symptomatic of the folly which has led to the current catastrophe.

We must now act with resolution, but not in the way Folkerts-Landau proposes, that is, not with more of the same medicine, which would certainly kill the patient. Although it has mainly operated over the past years out of London and New York, Deutsche Bank is too important for the German economy, and therefore for Germany, and ultimately for the fate of all of Europe. Its reorganization in the spirit of Alfred Herrhausen is not only the key to overcoming the banking crisis, but also for averting the acute danger of war.

Herrhausen's assassination has gone unpunished. However, there exists "the dreaded might, that judges what is hid from sight," which is the subject of Friedrich Schiller's poem "Die Kraniche des Ibykus." The Erinyes have begun their dreadful dance.1Friedrich Schiller, "Die Kraniche des Ibykus"

It is now incumbent upon all those who, in addition to the family, have suffered from the assassination of Herrhausen, upon the representatives of the Mittelstand, of the German economy and the institutional representatives of the German population, to honor his legacy and to seize the tremendous opportunity which is now offered to save Germany.

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Italian Banks and Deutsche Bank Lead the Crash of Trans-Atlantic Sector

The trans-Atlantic press is full of coverage of the Deutsche Bank and Italian banking crises, underscoring the importance of Lyndon LaRouche's intervention, calling for a one-time bailout of Germany to prevent chaos in Europe, but based on the need for major changes in the banking system, to push credits into the real economy and shut down the derivatives and other speculative bubbles.

Russia Today picks up on David Folkerts-Landau's interview with Welt am Sonntag, in which the chief economist of Deutsche Bank (DB) called for an emergency 150-billion-euro bailout, and also cites statements from Lorenzo Bini Smaghi, chairman of Societe Generale, warning that the Italian banking crisis can spread to all of the EU. DB stocks are down 48 percent over the past 12 months, Societe Generale stock is down 63 percent, and the Bloomberg Europe index of 500 banks and financial service firms is down 33 percent, reaching a seven-year low. A timeline in the Bloomberg article is titled ``The Epic Collapse of Deutsche Bank,'' which makes clear that the European banking system is now, immediately, on the edge of a crash.

RT also picks up on a recent, signed op-ed by George Soros, declaring that the collapse of the EU has become "almost inevitable" since the Brexit vote.

"The catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible,'' he wrote for Project Syndicate (which he heavily funds). He added that the financial collapse in the UK following Brexit is the worst in three decades. "The very survival of the European project'' is on the line in the negotiations of how Brexit will occur. RT coverage noted that Marine LePen met with French President Hollande and pressed for a referendum on "Frexit,'' but was rebuffed.

Reuters also gave extensive coverage to the Folkerts-Landau interview. Cityam, an online financial publication, noted that Italian banks are holding 360 billion euros of non-performing debt, with shares in all the major Italian banks and other Mediterranean banks—Unicredit, Banca Monte dei Paschi di Siena, Banco Popolare and Intesa San Paolo (Portugal)—down 25 percent since the vote for Brexit. Michael Hewson of CMC Markets UK was quoted, "if Italy goes under then it will take the rest of Europe with it.''

The Street headlined back on July 5 "Deutsche Bank to Initiate the Next Financial Crisis? Stock Could Be Headed to Zero.'' The article cited parallels to Lehman Brothers, showing DB in far worse shape than Lehman was at the end. The IMF warned that the greatest spillover from DB will hit France, the UK, and the US, which "have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country.'' A Wall Street Journal chart cited by The Street shows the bank-to-bank connections of DB. DB is leveraged more than 40:1, far worse than Lehman's 31:1 at the time of its collapse; and its current derivatives portfolio is $72.8 trillion, 13 percent of all global outstanding derivatives. "If the domino effect does occur, Germany with its GDP of $4 trillion or the EU with a GDP of $18 trillion will not be in a position to gain control over it.''

New Europe online headlines, "Why Deutsche Bank is the most dangerous bank in the world,'' asking what the price would be for the German government to bail it out, versus the consequences of letting it blow out with systemic implications.

Bloomberg also warned that the London real estate market is crashing and this is another consequence of Brexit. Standard Life Investments announced that as of today, it will suspend its UK Real Estate fund, to ward off investors demanding their money back. This is already triggering contagion, with several other big real estate investors announcing similar freezes on clients' funds, and others announcing simply that they are pulling out of existing deals for prime London real estate projects.

Taken together, the conditions of Italy, Deutsche Bank, and the London real estate market are more than sufficient to blow up the entire trans-Atlantic financial sector. It is precisely because of this already-onrushing crisis that emergency actions, precisely along the lines demanded by LaRouche, must be enacted immediately.